The US Dollar Index (DXY) continues to edge lower after struggling to make a clean break beyond 100. Nonetheless, USD’s unmatched yield credentials and a fiercely hawkish Fed should still provide sustained tailwinds, economists at Westpac report.

Fed’s increasingly hawkish stance should limit USD downside

“A front-loaded Fed hike cycle produced material yield support for the USD at the frontend and with the focus now shifting to balance sheet reduction yield, differentials further out the curve should start to move more materially in the USD’s favour.”

“DXY balked at 100 but likely to have another go in the days ahead.”